Bank of England policymakers edge closer to voting for first rate hike

Bank of England policymakers are edging closer to a long-awaited interest rate hike but are being held back the threat from the eurozone crisis, it emerged today.

After governor Mark Carney last week hinted that the Bank would think seriously about raising the bank rate either side of new year, it seems so-called hawks are moving closer to voting for a rate hike to forestall rising inflation.

Minutes of the monetary policy committee's July meeting showed its members once more voted 9-0 to leave the base rate at its record low of 0.5 per cent, where it has been for more than six years. ‘For all MPC members, the policy decision this month was clear cut,’ the minutes said.

Move close: Bank of England policymakers again voted unanimously to keep interest rates on hold this month but there are signs more of them are edging closer to pushing for a first hike since before the financial crisis

However, for ‘a number’ of policymakers the risks of inflation rising above the Bank’s 2 per cent target was rising and it was only the ‘very material factor’ of Greece's debt stand-off that influenced their vote to keep rates on hold.

'Absent that uncertainty, the decision between holding Bank rate at its current level versus a small increase was becoming more finely balanced,' the minutes added.

The pound rose sharply, by a cent against the dollar and the euro, as the minutes added to mounting signs that the Bank is moving closer to raising rates.

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But the July minutes showed that for most members, keeping rates on hold would still have been appropriate even without the problems in Greece and the volatility in China’s financial markets.

Martin Beck, senior economic advisor to the EY ITEM Club,said, 'A subtle change of wording in July’s MPC meeting minutes suggested that the Committee has become more hawkish, echoing the sentiments expressed in a number of speeches over recent weeks.

'It does appear that the more hawkish camp has expanded to include more than two members, increasing the chances that the recent unanimity will break at the August meeting. But a majority voting in favour of a rate hike still looks a long way off.

'Recent falls in the price of oil and energy could contribute to inflation falling into negative territory in the next few months.

'Moreover, were the UK to be the first major economy to undertake rate "lift-off", the already sizeable upward pressure on sterling could accelerate significantly, hitting exporters and undermining the prospect of inflation returning to the 2 per cent target.'

Mr Carney said last week a decision on lifting rates was 'likely to come into sharper relief around the turn of this year'. However, the EY Item Club warned that his remarks had been misinterpreted and that a rate rise before summer 2016 was still very unlikely.

The MPC had been given advanced notice of official figures showing inflation slipping back to zero in June - easing any pressure on the need for a rates hike which might be needed to stop it rising above its 2 per cent target.

But a minority of rate-setters argued that an increase in wages raised the possibility that inflation might reach the target 'sooner than anticipated'.

The minutes showed regular pay had been rising as much as 0.3 per cent more quickly than the Bank had forecast in its May inflation report. Pay growth has accelerated again according to official figures published a week after the meeting concluded on 8 July.

Meanwhile, the Bank has pencilled in an upturn in UK economic growth for 0.7 per cent for both the second and third quarters of this year, after it slowed to 0.4 per cent in the first three months of 2015.

Magazine interview: MPC member David Miles has said the time for a Bank of England interest rate hike is nearing and it is ‘highly likely’ that rates will continue to rise over the next few years

The Bank publishes a quarterly update of its forecasts for Britain's economy in August, and a stronger-than-expected acceleration of earnings growth, as revealed in data published last week, may prove to be the final evidence for those MPC members that the economic recovery can withstand a rate hike.

In a magazine interview, published today, David Miles has said the time for a hike is nearing and it is ‘highly likely’ that rates will continue to rise over the next few years.

Miles, who steps from the Monetary Policy Committee after next month’s meeting, said the key issue for the BoE was judging the point at which diminishing slack in the economy and rising cost pressures rise warrant raising rates from their record low levels.

‘My own reading, for what it is worth, is that the time is coming, and it is highly likely that Bank Rate will start rising over the next few years,’ Miles told Mortgage Strategy magazine, according to Reuters.

He would not say how he intends to vote in his final MPC meeting, having never voted for an interest rate hike since joining the BoE in 2009.

But the magazine quoted him as saying: ‘I'm sure I'll have something to tell the grandchildren. What it'll be, we'll have to wait and see. It's never too late.’

The comments echo a speech Miles gave last week, in which he confounded his reputation as a ‘dove’ on the MPC by saying it was ‘likely to be right’ that interest rates rise soon.

Big hint: Bank of England governor Mark Carney last week said the timing of a first increase in interest rates since before the financial crisis was likely to ‘come into sharper relief around the turn of this year’

Carney's message that higher interest rates are approaching has been heard by British households who are braced for tougher times ahead, according to a survey published today by financial data firm Markit.

About 44 per cent of survey respondents questioned after Carney’s speech said they expected tighter monetary policy in the coming six months, versus 31 per cent before the speech was made and 24 per cent in June, Markit said.

The Markit Household Finance Index showed current and future inflation perceptions were their strongest so far this year, even as Britain's main gauge of consumer prices slipped back to zero in June.

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Bank of England policymakers edge closer to voting for first rate hike